Lake Success / NY. (hc) The Hain Celestial Group Inc., a leading organic and natural products company with operations in North America, Europe and India providing consumers with A Healthier Way of Life, reported financial results for the fourth quarter and fiscal year ended June 30, 2018. The results contained herein are presented with the Hain Pure Protein operating segment being treated as a discontinued operation given the Company’s previously announced decision to divest the business, which is expected to be completed during the first half of fiscal year 2019.
«We continued to execute on our global strategic objectives, with marketing investments in our core brands and incremental savings and productivity through Project Terra, although a number of cost and operational headwinds in the United States impacted our consolidated annual results», said Irwin D. Simon, Founder, President and Chief Executive Officer of Hain Celestial. «Our top priorities in fiscal year 2019 are to return our United States business to growth and to generate increased profitability. We remain optimistic that the aggressive strategic changes and investments in our go-to-market strategy will fuel our future results and value for our stockholders».
Financial Highlights
Summary of Fourth Quarter Results from Continuing Operations
- Net sales increased 3 percent to USD 619.6 million compared to the prior year period, or a 1 percent decrease on a constant currency basis, primarily reflecting low double digit net sales increases from the United Kingdom and Rest of World reporting segments, which includes the Canada and Europe operating segments, partially offset by a mid-single digit net sales decrease from the United States reporting segment. When adjusted for Foreign Exchange and Acquisitions, Divestitures and certain other items, including the 2017 and 2018 Project Terra Stock Keeping Unit (SKU) rationalization3, net sales would have increased 3 percent compared to the prior year period.
- Gross margin of 20.2 percent, a 370 basis point decrease over the prior year period; adjusted gross margin of 21.1 percent, a 290 basis point decrease over the prior year period as a result of higher trade and promotional investments in the United States and increased freight and commodity costs.
- Operating income of USD 16.6 million, an increase of USD 9.4 million over the prior year period; adjusted operating income of USD 44.5 million, a USD 21.3 million decrease over the prior year period.
- Net loss of USD 4.6 million, a USD 3.1 million increase in net loss over the prior year period; adjusted net income of USD 27.7 million, a USD 14.8 million decrease over the prior year period.
- Ebitda of USD 45.8 million, a 41 percent decrease over the prior year period; Adjusted Ebitda of USD 61.4 million, a 25 percent decrease over the prior year period.
- Earnings per diluted share (EPS) loss of USD 0.04 compared to an EPS loss of USD 0.01 in the prior year period; Adjusted EPS of USD 0.27 compared to USD 0.41 in the prior year period.
Summary of Fiscal Year 2018 Results from Continuing Operations
- Net sales increased 5 percent to USD 2.458 billion compared to the prior year, or 2 percent on a constant currency basis, primarily reflecting low to mid double-digit net sales increases from the United Kingdom and Rest of World reporting segments, which includes the Canada and Europe operating segments, partially offset by a low single digit net sales decrease from the United States reporting segment. When adjusted for Foreign Exchange and Acquisitions, Divestitures and certain other items including the 2017 and 2018 Project Terra SKU rationalization3, net sales would have increased 2 percent compared to the prior year.
- Gross margin of 21.0 percent, a 120 basis point decrease over the prior year; adjusted gross margin of 22.1 percent, a 40 basis point decrease over the prior year as a result of higher trade and promotional investments in Hain Celestial United States, increased freight and commodity costs and unfavorable mix, partially offset by Project Terra cost savings.
- Operating income of USD 106.0 million, a USD 3.4 million decrease over the prior year; adjusted operating income of USD 186.1 million, a USD 14.5 million decrease over the prior year.
- Net income of USD 82.4 million, a USD 16.9 million increase over the prior year; adjusted net income of USD 121.3 million, a USD 3.8 million decrease over the prior year.
- Ebitda of USD 197.2 million, a 14 percent decrease over the prior year; Adjusted Ebitda of USD 255.9 million, a 3 percent decrease over the prior year.
- EPS of USD 0.79 compared to USD 0.63 in the prior year; Adjusted EPS of USD 1.16 compared to USD 1.20 in the prior year.
- Cash flow provided by operating activities from continuing operations of USD 121.3 million; operating free cash flow of USD 50.4 million.
Segment Highlights from Continuing Operations
Hain Celestial United States
Hain Celestial United States net sales in the fourth quarter decreased 6 percent over the prior year period to USD 269.9 million; when adjusted for Acquisitions, Divestitures and certain other items including the 2017 and 2018 Project Terra SKU rationalization3, net sales would have been generally flat. Net sales growth from the Pure Personal Care platform was offset by declines in other platforms. As previously discussed, the decline in net sales was due in part to the strategic decision to no longer support certain lower margin SKUs in order to reduce complexity and increase gross margin over time, as the United States reporting segment continued its focus on its top 500 SKUs, which disproportionately impacted the other platforms. Segment operating income in the fourth quarter was USD 18.6 million, a 56 percent decrease from the prior year period, and adjusted operating income was USD 23.2 million, a 45 percent decrease over the prior year period, driven primarily by higher trade and marketing investments to drive future period growth and increased freight and logistics costs. The financial results for the current period as well as the prior year fourth quarter results exclude the United Kingdom operations of the Ella’s Kitchen® brand, thereby eliminating net sales of approximately USD 25.3 million and USD 23.6 million, respectively, as these net sales are now reported as part of the United Kingdom reportable segment.
Hain Celestial United States net sales in fiscal year 2018 decreased 2 percent over the prior year to USD 1.085 billion; when adjusted for Acquisitions, Divestitures and certain other items including the 2017 and 2018 Project Terra SKU rationalization3, net sales would have decreased 1 percent. The decrease in net sales was driven by declines in the Better-for-You Snacking, Fresh Living and Better-for-You Pantry platforms, partially offset by growth in the Pure Personal Care, Better-for-You Baby and Tea platforms. The decline in net sales was also due to the aforementioned fourth quarter fiscal 2018 items. Segment operating income in fiscal year 2018 was USD 86.3 million, a 41 percent decrease from the prior year, and adjusted operating income was USD 113.2 million, a 25 percent decrease over the prior year, driven primarily by higher trade and marketing investments to drive future period growth, increased freight and commodity costs and unfavorable mix. The financial results for fiscal years 2018 and 2017 exclude the United Kingdom operations of the Ella’s Kitchen® brand, thereby eliminating net sales of approximately USD 94.9 million and USD 83.5 million, respectively, as these net sales are now reported as part of the United Kingdom reportable segment.
Hain Celestial United Kingdom
Hain Celestial United Kingdom net sales in the fourth quarter increased 10 percent to USD 239.1 million over the prior year period, or 5 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. The strong results for the United Kingdom segment were driven by 15 percent growth from Tilda®, 9 percent growth from Hain Daniels and 8 percent growth from Ella’s Kitchen®, or 9 percent, 4 percent and 1 percent growth, respectively, after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. Segment operating income was USD 19.0 million, a 9 percent decrease from the prior year period, and adjusted operating income was USD 20.2 million, a decrease of 7 percent over the prior year period. The financial results for the current period as well as the prior year fourth quarter results include the United Kingdom operations of the Ella’s Kitchen® brand, which was previously reported as part of the United States reportable segment.
Hain Celestial United Kingdom net sales in fiscal year 2018 increased 10 percent to USD 938.0 million over the prior year, or 5 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. The strong results for the United Kingdom segment were driven by 14 percent growth from Tilda®, 9 percent growth from Hain Daniels and 14 percent growth from Ella’s Kitchen®, or 8 percent, 3 percent and 7 percent growth, respectively, after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. Segment operating income in fiscal year 2018 was USD 56.0 million, an 8 percent increase from the prior year, and adjusted operating income was USD 70.3 million, an increase of 24 percent over the prior year driven by strong contribution from the Hain Daniels brands. As discussed above, the financial results for fiscal years 2018 and 2017 include the United Kingdom operations of the Ella’s Kitchen® brand, which was previously reported as part of the United States reportable segment.
Rest of World
Rest of World net sales in the fourth quarter increased 12 percent to USD 110.7 million over the prior year period, or by 6 percent on a constant currency basis. Net sales for Hain Celestial Europe grew 18 percent, or 8 percent on a constant currency basis, driven by strong performance from the Tilda®, Danival® and Joya® brands as well as own-label products. Net sales for Hain Celestial Canada grew 9 percent, or 5 percent on a constant currency basis, driven by strong performance from the Yves Veggie Cuisine®, Alba Botanica®, Sensible Portions® and Live Clean® brands. Segment operating income in the fourth quarter was USD 8.1 million, a USD 2.0 million decrease from the prior year period. Adjusted operating income was USD 9.9 million, a 2 percent decrease over the prior year period.
Rest of World net sales in fiscal year 2018 increased 13 percent to USD 434.9 million over the prior year, or by 7 percent on a constant currency basis. Net sales for Hain Celestial Europe grew 19 percent, or 8 percent on a constant currency basis, driven by strong performance from the Tilda®, Danival®, Joya®, as well as own label products. Net sales for Hain Celestial Canada grew 13 percent, or 8 percent on a constant currency basis, driven by strong performance from Yves Veggie Cuisine®, Tilda®, Live Clean® and Sensible Portions® brands. Segment operating income in fiscal year 2018 was USD 38.7 million, a 21 percent increase from the prior year, and adjusted operating income was USD 42.6 million, a 34 percent increase over the prior year.
Hain Pure Protein Discontinued Operations
As previously disclosed on May 5, 2018, the results of operations, financial position and cash flows related to the operations of the Hain Pure Protein business segment have been moved to discontinued operations in the current and prior periods. Net sales for Hain Pure Protein in the fourth quarter were USD 113.2 million, a decrease of 7 percent compared to the prior year period, primarily due to the shift in timing of the Passover holiday. Segment operating loss in the fourth quarter was USD 83.8 million and included a USD 78.5 million pre-tax non-cash impairment charge.
For fiscal year 2018, net sales for Hain Pure Protein were USD 509.5 million, relatively flat compared to the prior year. Segment operating loss for fiscal year 2018 was USD 78.3 million and includes a USD 78.5 million pre-tax non-cash impairment charge.
Fiscal Year 2019 Guidance
The Company provided its annual guidance for continuing operations for fiscal year 2019:
- Total net sales of USD 2.500 billion to USD 2.560 billion, an increase of approximately 2 percent to 4 percent as compared to fiscal year 2018.
- Adjusted Ebitda of USD 275 million to USD 300 million, an increase of approximately 7 percent to 17 percent as compared to fiscal year 2018.
- Adjusted EPS of USD 1.21 to USD 1.38, an increase of approximately 4 percent to 19 percent as compared to fiscal year 2018.
The Company expects growth in net sales, adjusted Ebitda, and adjusted EPS to be weighted towards the second half of fiscal 2019 as it benefits from the planned Hain Celestial United States strategic brand investments, distribution gains and price optimization efforts. As a result of the continued strategic brand investments and expected near-term cost headwinds, the Company expects first quarter of fiscal 2019 net sales to be flat to slightly down, adjusted Ebitda and adjusted EPS to be down year-over-year on a percentage basis similar to the fourth quarter of fiscal 2018. In addition, the timing of the annual global Project Terra cost savings and productivity benefits that are already in process is expected to accelerate as the fiscal year progresses.
Guidance, where adjusted, is provided on a non-GAAP basis and excludes acquisition-related expenses, integration and restructuring charges, start-up costs, costs associated with the CEO Succession Agreement, unrealized net foreign currency gains or losses, accounting review and remediation costs and other non-recurring items that may be incurred during the Company’s fiscal year 2019, which the Company will continue to identify as it reports its future financial results. Guidance also excludes the impact of any future acquisitions.
The Company cannot reconcile its expected Adjusted Ebitda to net income or adjusted earnings per diluted share to earnings per share under «Fiscal Year 2019 Guidance» without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time.
Effective July 1, 2017, due to changes to the Company’s internal management and reporting structure, the United Kingdom operations of the Ella’s Kitchen® brand, which was previously included within the United States reportable segment, is included in the United Kingdom reportable segment. The prior period segment information contained below has been adjusted to reflect the Company’s new operating and reporting structure.
